Correlation Between IShares Trust and Vanguard Bond

Can any of the company-specific risk be diversified away by investing in both IShares Trust and Vanguard Bond at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining IShares Trust and Vanguard Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares Trust and Vanguard Bond Index, you can compare the effects of market volatilities on IShares Trust and Vanguard Bond and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in IShares Trust with a short position of Vanguard Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Trust and Vanguard Bond.

Diversification Opportunities for IShares Trust and Vanguard Bond

0.06

Correlation Coefficient

IShares Trust  Vanguard Bond

Significant diversification

The 3 months correlation between IShares and Vanguard is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust and Vanguard Bond Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Bond Index and IShares Trust is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on iShares Trust are associated (or correlated) with Vanguard Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Bond Index has no effect on the direction of IShares Trust i.e., IShares Trust and Vanguard Bond go up and down completely randomly.

Pair Corralation between IShares Trust and Vanguard Bond

Assuming the 90 days trading horizon iShares Trust is expected to under-perform the Vanguard Bond. But the etf apears to be less risky and, when comparing its historical volatility, iShares Trust is 1.31 times less risky than Vanguard Bond. The etf trades about -0.11 of its potential returns per unit of risk. The Vanguard Bond Index is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  143,785  in Vanguard Bond Index on December 30, 2024 and sell it today you would lose (1,285) from holding Vanguard Bond Index or give up 0.89% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	74.6%
Values	Daily Returns

iShares Trust   vs.  Vanguard Bond Index

iShares Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Vanguard Bond Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Bond Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Vanguard Bond is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Trust and Vanguard Bond

The main advantage of trading using opposite IShares Trust and Vanguard Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Trust position performs unexpectedly, Vanguard Bond can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Vanguard Bond will offset losses from the drop in Vanguard Bond's long position.

The idea behind iShares Trust and Vanguard Bond Index pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.